Weekly Economic Update-Fed Chair Speaks

New Fed Chair Jerome Powell assured both houses of Congress that the economy is in great shape. Oh yeah, and rates are going to continue to rise.

Residential construction had a horrid June. Housing starts plunged and permits dipped, but both managed to get to the same place – a nine-month low. Home completions performed better; they managed to stay even with the prior month.

Any drop in housing starts won’t be reflected in the inventory for a while. The Census Bureau says it takes more than seven months to build a house.

Federal Reserve Chair Jerome Powell spent two days on Capitol Hill this week, appearing before both the Senate Banking Committee and House Financial Services. Each group heard him express high praise for the economy, growing at a “solid pace”; an upbeat view of unemployment, it should fall even lower; and few worries about wage gains versus inflation.

He also downplayed concerns about the flattening yield curve, saying it was the result of the market pricing in the Fed’s rising of interest rates. And about those rates, he told the senators, “With a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that--for now--the best way forward is to keep gradually raising the federal funds rate.” “For now,” he said that means a rate hike every three months.

Builders have been signaling mild unease about the new home market for several months. The National Association of Home Builders’ (NAHB’s) survey of builder confidence has remained elevated but static, stuck within a 2-point range since March and remaining at 68 this month and last. That discomfort is probably reflected in the dismal June construction numbers.

Permits declined month-over-month for the fourth time in five months, this time by 2.5%, and are down 3.0% year-over-year. Permits for single-family houses eked out a fractional gain.

The number of units completed during the month, a seasonally adjusted annual 1.26 million units, was unchanged from May. Houses came on line at a 2.2% faster rate than the previous June.

The slowdown was felt in all regions of the country. In the West, permits and starts are running behind the same period in 2017 by 7.1% and 3.3% respectively. Houses came on line at a good clip however; completions were up by 13.5%.

Timelines

Staying more or less on topic, NAHB says it took 7.5 months to build a home last year, unchanged from 2016 but two weeks more than in 2015. Data from the Census Bureau’s Survey of Construction (SOC) indicates that builders typically delay construction by about a month after pulling a permit, then take 6.5 months to build.

About 32% of new homes sold before construction started and 29% during construction. Only 11.6% of homes completed in 2017 remained unsold in the first quarter of this year.